FED likes rates unchanged...MARKET don't!
(mini-me likes chocolate...scottie don't!)

the federal reserve left interest rates unchanged at 1% after their last meeting. since that meeting ended, interest rates have risen by about 0.25%. in fact, since the meeting they held in june when they lowered interest rates by 0.25% to the current 1% level, interest rates on the 10 year treasury have risen from 3.10% to 4.55% or 1.45% in absolute terms and by almost 50% in relative terms. talk about the law of unintended consequences.

the FED has gone to great stakes to assure the markets that they will leave interest rates at the current low levels until the economic recovery has firmly taken hold. its clear that they feel it is important to keep an accomodative monetary stance in order to allow the economy to get back on a growth path that is robust and sustainable.

measuring by the back-up in rates, the bond market doesn't feel the same way. and if the market is not cooperative, it seems clear that the FED has lost its power and the market forces are in firm control of where interest rates will be. there are a number of reasons that could be the cause of this disparity, but the only thing that really matters is that rates are higher which will slow growth just as we start to take hold of the economic recovery.

the FED seemed to feel that rates needed to remain low in order to sustain the economic stability. so why are the markets challenging that? this is a question that will be answered over the next few weeks or months.

have a grateful day!

larry